LG Electronics' Kwang-Ro Kim: Top of the heap

Mf it's humanly conceivable, it's humanly deliverable. What sounds like airy-headed pep-talk under most circumstances, is quite another thing coming from Kwang-Ro Kim, Managing Director, LG Electronics India Ltd (LGEIL). ''Our dream,'' he declares grandly, ''is to be No 1 in India.'' He has said it before, and is saying it again.

This time, Kim's consumer durable rivals are not just listening, but probably working out the odds.

It takes a mere brush with the company's operations to discover just how seriously everyone takes targets. This was evident at the Grand Pacific, Bangkok, where a 54-member Indian team went into a huddle in April 2001 to set itself a goal for 2002: 30 per cent growth in sales and 10 per cent in profit. It was also evident at Sariska, Rajasthan, when the team gathered again, in July, to set specifics and formalise individual commitments. The stretch target: Rs 3,000 crore. The minimum: Rs 2,700 crore, which would still require a 22 per cent sales jump.

The graph, so far, has been steep-2001 being the only dull year with a growth of only 16 per cent. This too was enviable, considering how tense market conditions were. The Indian CTV market grew 8 per cent in 2001 to touch 5.4 million units (ACS barely squeaked into double-digit growth), even as washing machines and fridges lost volumes.

Anyhow, whether demand revives this year is not LG's main concern. The way LG sees it, it must deliver-crunching into its rivals' share, if need be.
Now that's aggression. Something this Korean chaebol learnt the hard way.

Third Time Lucky

The first two times that LG had a go at the Indian market, it relied heavily on local partners (Bestavision first, the C.K. Birla Group next). And got nowhere. These were mere operational ventures, selling me-too products, with nothing to outwit rivals. The real market-movers in India were BPL, Onida, and Videocon, and Bestavision and Birla didn't have a clue how to get close to them. Besides, the brand Lucky Goldstar inspired as much confidence as a tinshed assembler in Jalandhar or something (it was later shortened to LG).

By January 1997, LG was ready for another attempt. Having learnt from past errors, the group now had a fully-owned subsidiary. Sure enough, it got cracking immediately. This time round, LG was keen to challenge commodification. For this, it chose to rely on two things: its own quality-control systems and the market insights of Indian professionals who'd seen brand breakthroughs closely (Rajeev Karwal, the company's first marketing head, for example, had been with Onida for many years).

Anything to do with Indian consumer behaviour, LG's top management was all ears. ''LG's success is more related to marketing than technological superiority,'' feels Francis Xavier, Managing Director, Francis Kanoi Marketing Services, a market research firm.

As it turns out, the company's third-attempt success is on its way to the legend books. And it all happened in a flash. Starting 1997, all-India presence was established in just four months, its latecomer status be damned. Says Ajay Kapila, Vice President, Kinetic, and former head of LG's sales and marketing (he succeeded Karnal): ''Indian brands were ruling the roost, so we went to the next line of traders, who were hungrier.'' The trade terms were stiff: no credit. Despite this, the betting was on large volumes right from lift-off point. This was risky, for it involved large shipments from Korea. Big brand dealers quietly snickered behind the executives' backs.

But the company was confident of the deal it was offering-to the consumer, that is. No discounts, no exchange schemes, and no dealer-deals. No price baits either. Just worthy products, for reasonable money.

Operations were kept tight from day one. The product launches were rapid-fire, with 70 in the very first year. But it wasn't just the speed. Each projectile was watched in awe by onlookers, as if pre-engineered to sear through the haze and fulfil a specific consumer need overlooked by others. The unifying proposition-health-was a winner all the way, altering the very way the Indian consumer looked at durables.

Today, TV-viewing is also an issue of eyecare, and air-conditioning also about air-purity. No one could have imagined it before 1997. What's more, the wave is rising. As big-ticket decisions move from husband to wife, so does 'pull power' move towards LG. It is not just another option, a label amongst many in a showroom line-up. It is a de facto brand, in command of consumer preference. A brand that claims leadership of ACS and microwaves ovens. Moreover, it's selling every tenth CTV, which means it could soon displace Videocon for a place amongst the top three in this fiercely-fought market (led by BPL).

"In terms of broader differentiators, our products stand apart from competition" Pradeep Tognatta, VP (Sales & Marketing), LGEIL

Current Broadside

The broad contours of the success formula in place, LG started working out the details. ''In terms of broader differentiators, our products stand apart from competition,'' says Pradeep Tognatta, Vice President (Sales & Marketing), LGEIL. In the ac market, for instance, LG's Plasma range offers the air-filtering benefit of its unique Gold Fin technology. The idea is to make a direct appeal to the end-consumer. ''The thought is clear,'' says Tognatta, ''once the secondary sale has been made, the primary sale becomes very easy.'' The idea is to generate demand, and then let dealers service it-instead of shunting products down the distribution system. This requires close customer proximity, a reason why LG's marketing executives have been relocated to 72 area offices (from the 23 branch offices).

The challenge now is to span out and address a wider set of needs. Last year, LG launched 18 new CTV models. It also launched some 30 models of home appliances (including white goods), and heightened action on this front should raise their share in the LG pie from a quarter two years ago, to more than half this year. LG is also entering segments left unaddressed by it so far, such as that of 165-litre direct-cool fridges, which form the bulk of the Indian market. Other lower price-point products are coming too, some of them aimed at the rural consumer (Cineplus, a low-priced TV, will complement the low-priced TV Sampoorna).

Having played the pioneer of micro-localisation, the company still insists that R&D and marketing work closely together, day-to-day. LG was the first to launch a TV with a Hindi menu, and now has 10 regional languages too. The R&D department also plays a role in cost innovation. Recently, it came up with a new chassis that cut component cost while raising performance. The quest is to do even better. This kaizen attitude is also visible at the LG plant at Noida, near Delhi. The drive here is to achieve Six-Sigma quality. Which requires the reduction of defectives to negligible levels. On this, each assembly line is made to compete with the other. The eventual outcome: efficiency and quality, both. Thanks to the company's control systems, a similar work ethic is being transmitted to LG's suppliers in Mohali, Kolkata, Guwahati, Bhopal, and Nasik.

Vital to the spread-out initiative is a rehaul of the distribution network. Home appliances have necessitated separate dealers, many of them specialists. ''For sharper focus on all categories individually,'' explains Tognatta, ''the market had to be opened wider.''

Apart from ensuring brand preference, LG's depth efforts include drawing the consumer up the value escalator. In CTVs, boasts LG, a good fraction of its sales now come from such high-margin products as the Flatvision and Projection TVs. Other upscale products, including hi-fi systems, dishwashers, mobile phones and DVD players, are to join the company's line-up soon.

Of course, LG won't get everything right. Already, its DVD players and vacuum cleaners are gathering dust. Given that LG is a company that's not used to unsold stock, adjustment might prove painful. Efficiency has always been treated as a non-negotiable. By the LG dream system, every operation must be just-in-time, with nothing lying idle.

Sustainable? Market insiders point out that LG stock is getting heavier, forcing the trade margins up and killing the no-credit policy. Market conditions are such.

Final Ascent

All said, the summit is still a steep climb. LG must not lose sight of the original reason for its success: the selling of higher-order universal benefits. The challenge is still the same, by and large... it's just that a larger audience must now be sensitised to the message.

Globally, LG is selling internet-enabled fridges, washing machines and the like, but in India, technology in itself could fall flat. In the opinion of Rajeev Karwal, Senior Vice President (Consumer Electronics), Philips India, and former LG marketing whiz, the brand's health platform must never be compromised. Take the ac market, to service which LG is investing Rs 100 crore in a new plant to make a wide assortment of ACs, including multiple splits and stand-up types-to storm the commercial segment. Some 19 models are lined up for launch this year, all selling healthy air under the pink-faced logo.

Health is an internal pre-requisite too. On profit before tax, LGEIL is in happy double-digits. Good enough, one could say, to take the company public in India-as the group is considering, in a move contrary to what most of the western multinational corporations have been doing. ''We have made a decision to postpone the move for the time being,'' says Kim, though. How come? ''We have enough cash flow, and we don't need immediate money.''

An early stock-listing might give LG a major boost. Typically, people prefer to buy products from companies they benefit from as shareholders too. So long as LG doesn't expect a golden bull made in its honour, its stock could do fairly well. Even worldwide, investors are looking out for non-dollar assets nowadays. Resident Indians, of course, must make only rupee investments. And if LG has tried so hard to be Indian in spirit, perhaps it should be so in part-ownership as well.

This, after all, is a company that has gone great lengths to devolve decisions to local levels, even on stuff the western MNCs are so rigid about, such as advertising creativity. Who knows, the No 1 dream could be brought closer by the additional customer loyalty across categories. As expressed in a small-town shop poster in Hinglish: 'Na jee, only jee, LG'. Add: 'may be'.